MTH5520 - Interest rate modelling - 2019

6 points, SCA Band 2, 0.125 EFTSL

Postgraduate - Unit

Refer to the specific census and withdrawal dates for the semester(s) in which this unit is offered.



Organisational Unit

School of Mathematical Sciences

Chief examiner(s)

Dr Kihun Nam


Dr Kihun Nam

Unit guides



  • Second semester 2019 (On-campus)


MTH3251 or MTH3260 or equivalent


Only students enrolled in the Master of Financial Mathematics can enrol in this unit. Exceptions can be made with permission from the unit co-ordinator.


Interest rate curves. Zero-coupon bonds, spot and forward interest rates. Interest rate derivatives. Stochastic differential equations. Change of measures. No arbitrage pricing and change of numeraire. One-factor short rate models, including Vasicek, Hull and White, CIR and affine models. Two-factor short rate models. The HJM framework and models for forward rates. LIBOR models. Pricing of interest rate derivatives: swaps, caps and swaptions.


On completion of this unit students will be able to:

  1. Develop specialised mathematical knowledge and skills within the field of stochastic calculus.
  2. Understand the complex connections between financial and probabilistic concepts.
  3. Apply sophisticated stochastic modelling skills within the context of interest rate modelling.
  4. Apply critical thinking to problems in interest rate modelling.
  5. Formulate expert solutions to practical financial problems using specialised cognitive and technical skills within the field of stochastic calculus.
  6. Communicate complex information in an accessible format to a non-mathematical audience.


NOTE: From 1 July 2019, the duration of all exams is changing to combine reading and writing time. The new exam duration for this unit is 3 hours and 10 minutes.

Examination (3 hours): 60% (Hurdle)

Continuous assessment: 40%

Hurdle requirement: To pass this unit a student must achieve at least 50% overall and at least 40% for the end-of-semester exam.

Workload requirements

Two 2-hour lectures per week

See also Unit timetable information